The Indian Economy Blog

December 7, 2005

An Outrageous Take On Labour Laws

Filed under: Labour market,Regulatory reforms — Ravikiran Rao @ 1:31 pm

In the previous post, Eswaran points me to this article which claims that labour laws are the least of India’s worries. The reasoning given there is so bad that I was left wondering how anyone in his right senses could advance it. Just as I was preparing to write a response, I remembered that I had already done so. This post, which I made in the immediate aftermath of the Gurgaon outrage, answers those points adequately.


  1. I remember watching PM Singh on Charlie Rose show months ago. He made a similar comment that labor reform does not impact a vast majority of people in India. He said that labor restriction impacts 3% (I think) of labor market, mostly in PSUs, and while something needs to be done about it, that should not be an impediment to foreign investment in India. I think there is lot of myth about labor restrictions and few know the real issues. It surely does not seem to be on PM’s reform agenda.

    Comment by Chandra Dulam — December 8, 2005 @ 11:22 pm

  2. Even if labour restrictions don’t matter for FDI (an assertion I would contest), they do matter for the workers. Work gets outsourced to small-scale outfits which are out of the purview of any laws. That cannot be good for workers.

    From an FDI point of view, plants remain small and out of direct MNC oversight. They do not capture economies of scale. The reasoning that because labour restrictions affect only 3 percent of the market, they are low priority is ridiculous misrepresentation. It is because of the labour restrictions that only 3% of the workforce is in the organized sector. I am not saying that it is the only reason, but it is one big reason.

    Comment by Ravikiran Rao — December 9, 2005 @ 10:54 am

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